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Price Dispute Within Solar Industry Derived from Raw Material Inflation Expected to Conclude Soon
2021/9/1
Could the price dispute that has already lasted several months between solar module and solar system developers in Taiwan come to an end with the intervention and help of the government?
It all started a year ago, when the upstream solar material prices started surging. Polysilicon prices skyrocketed by 250% from US$8-10/kg to more than US$30, and various industrial raw materials, including polysilicon, conductive plastic, glass, aluminum frame, and inverters, started experiencing shortages since the second half of 2020 due to the impact from the COVID-19 pandemic.
Naturally, the manufacturers are hoping that the rising material costs could be reflected on the prices. However, the contracts between the module makers and developers are typically settled 3-6 months ahead of time. These agreements cover not just the modules orders that had already been fulfilled, but also those that are scheduled for future shipments. Since the recent increases in costs have turned out to be more than 25% of what was originally stipulated in the contract, it had led to a nearly unresolvable price dispute between the module makers and solar system developers.
According to industry insiders, the solar system developers are faced with an equally difficult situation under the global inflation. For developers, modules merely account for 20-25% of the total cost of their power plant establishments; the costs for the rest of the plant, such as their steel structure, aluminum bracket, and manpower, have also risen simultaneously, which drastically reduces the return on investment anticipated by system developers and affects their profitability. Although most system developers and module makers have managed to eventually complete and fulfill their contracts, there is still a number of them out there –including a certain large module maker and three renowned developers— that have yet to come to an agreement on the module prices.
The PV Generation System Association of Taiwan (PVGSA) has recently advised that the government should implement diversified imports of foreign modules and cell products to ensure that there are sufficient modules for domestic suppliers so that they can achieve stable deliveries and avoid breach of contracts. This would allow the prices and competitiveness of module systems to be in line with the international sectors. However, the cost of overseas solar products, which is even lower than that of Taiwan made modules, coupled with the risks of getting involved with the “red” supply chain, have stirred up protests and strong oppositions from module makers.
Some market insiders have pointed out that the demand for imports based on the concerns towards insufficient domestic supplies is really just a “tactic” that is aimed at getting the government involved in the pricing negotiations. The current four major module makers in Taiwan are TSEC with a capacity of 900MW/year, URE with a capacity of 600MW/year, Motech with a capacity of 300MW/year, and AUO at 300MW/year. All four module makers have commented that they are able to supply and fulfil the demand of the domestic market, and they are even capable of carrying out production line expansions at the same time.
The Bureau of Energy has been communicating with multiple suppliers for the past month or so, and Shen Jong-chin, the Vice Premier of the Executive Yuan, had also convened with certain committee members in two video conference calls. Apart from the three extensive development projects totaling to roughly 160MW that have resulted in price disputes, there are still 25 small and medium projects totaling to approximately 135MW that require the coordination of various parties.
(Cover photo source: shutterstock)
It all started a year ago, when the upstream solar material prices started surging. Polysilicon prices skyrocketed by 250% from US$8-10/kg to more than US$30, and various industrial raw materials, including polysilicon, conductive plastic, glass, aluminum frame, and inverters, started experiencing shortages since the second half of 2020 due to the impact from the COVID-19 pandemic.
Naturally, the manufacturers are hoping that the rising material costs could be reflected on the prices. However, the contracts between the module makers and developers are typically settled 3-6 months ahead of time. These agreements cover not just the modules orders that had already been fulfilled, but also those that are scheduled for future shipments. Since the recent increases in costs have turned out to be more than 25% of what was originally stipulated in the contract, it had led to a nearly unresolvable price dispute between the module makers and solar system developers.
According to industry insiders, the solar system developers are faced with an equally difficult situation under the global inflation. For developers, modules merely account for 20-25% of the total cost of their power plant establishments; the costs for the rest of the plant, such as their steel structure, aluminum bracket, and manpower, have also risen simultaneously, which drastically reduces the return on investment anticipated by system developers and affects their profitability. Although most system developers and module makers have managed to eventually complete and fulfill their contracts, there is still a number of them out there –including a certain large module maker and three renowned developers— that have yet to come to an agreement on the module prices.
The PV Generation System Association of Taiwan (PVGSA) has recently advised that the government should implement diversified imports of foreign modules and cell products to ensure that there are sufficient modules for domestic suppliers so that they can achieve stable deliveries and avoid breach of contracts. This would allow the prices and competitiveness of module systems to be in line with the international sectors. However, the cost of overseas solar products, which is even lower than that of Taiwan made modules, coupled with the risks of getting involved with the “red” supply chain, have stirred up protests and strong oppositions from module makers.
Some market insiders have pointed out that the demand for imports based on the concerns towards insufficient domestic supplies is really just a “tactic” that is aimed at getting the government involved in the pricing negotiations. The current four major module makers in Taiwan are TSEC with a capacity of 900MW/year, URE with a capacity of 600MW/year, Motech with a capacity of 300MW/year, and AUO at 300MW/year. All four module makers have commented that they are able to supply and fulfil the demand of the domestic market, and they are even capable of carrying out production line expansions at the same time.
The Bureau of Energy has been communicating with multiple suppliers for the past month or so, and Shen Jong-chin, the Vice Premier of the Executive Yuan, had also convened with certain committee members in two video conference calls. Apart from the three extensive development projects totaling to roughly 160MW that have resulted in price disputes, there are still 25 small and medium projects totaling to approximately 135MW that require the coordination of various parties.
(Cover photo source: shutterstock)
